The Indian automobile industry has reached a very interesting point by now: multinational companies (MNCs) have reached a 75 percent market share in the passenger car and utility vehicle markets. What has happened in the last decenny?
First, Maruti Udyog has been privatised by the Indian state and has become Maruti Suzuki,with Suzuki owning 54 percent of the capital. Second, the large MNCs, after a very long period of trials and errors, have started to market attractive products.
Of course, Hyundai has been the most efficient in grabbing 17 percent market share with the Eon, I10, i20 but Toyota, Ford, GM, VW, Nissan and Renault have also launched a slew of products that have dented the Indian OEMs marketshare, namely the Etios, Figo, Beat, Vento, Micra and Duster.
This same shifting point has not yet occured in the heavy commercial vehicles with Indian players having 95 percent marketshare with Tata, Ashok Leyland and Eicher. But once again, international MNCs are now fully prepared to attack with BharatBenz, Volvo and Navistar.
Similarly for the two-wheeler industry, Hero MotoCorp, Bajaj Auto and TVS Motor keep a 78 percent market share. But once again, after Hero and Honda split last year, Honda Motorcycle & Scooter India is gaining rapid marketshare and is now challenging Bajaj’s number two 2 position.
How could the Indian Tier 1 and Tier 2 suppliers be impacted by such a rapid shift has become the key question for the auto industry ? For this $40 billion industry, covering more than 650 companies, the pressure is building from their foreign counterparts from Japan, Korea, Europe and USA.
Top 20 players like Bosch, Continental, Valeo, Bridgestone, Faurecia and Michelin have already entered the fray and are deploying their heavy resources.But more than the huge amount of financial resources, these companies spend about four or five percent of their turnover on R&D, when the Indian industry hardly spends two percent and has a huge reservoir of human talents, who develop their innovations. In the last 20 years, Bosch has invented ABS for braking, ESP for safe handling, common-rail for diesel and has developed a capital of over 5,000 engineers in India.
This trilogy of investment, human talent and technology is the sinews of war. Of course, large Indian suppliers have already taken up the gauntlet. TVS, Anand Group, JK Group, Systech (Mahindra Group), Bharat Forge and many others are heavily committed to raising their levels of human and technical expertise.
In order to develop technology, three different routes are normally used. The most conventional and widespread is the license agreement with some technical assistance from Western companies. For instance, TVS is the licensee for Delphi common-rail in India. It’s a well-oiled solution, but the limits are set with what Western companies wish to offer.
The second most common is the joint venture agreement with an export company, like for instance MothersonSumi in the field of wiring harnesses. The third one, which is growing fast, is the acquisition of foreign companies: Systech has been one of the pioneers when it acquired Schoeneweiss in Germany and Stoke in UK, in order to grow its expertise in forged crankshafts.
There is an alternative road, still at the infancy stage, where companies could recruit top talent from overseas in order to build internal knowledge faster.
OEMs have aready some experience on this front; for instance Karl Slym as a CEO at Tata Motors or Rick Haas as the senior vice- president, product development, at Mahindra Automotive and a few more. Suppliers are more and more interested by this solution and thanks to transition management, they can now recruit experts for a fixed duration like 10 or 20 months with a specific set of objectives. NewbridgePartners, a French company recently set up in Mumbai, has advanced discussions in progress in the fields of foundry, rubber, plastic and logistics with several Indian suppliers.
The relative size of Indian companies compared to their competitors is small and the numbers are very high. French auto suppliers are five times less numerous than Indian ones for the same turnover.
Robert Bosch has a $ 66 billion turnover when Anand Group has reached $1 billion. Looking at each technology cluster, like foundries in Rajkot or in Coimbatore, we coud meet as many as 100 differentcompanies. Consolidation has to be made in order to reach a decent size facing Western competitors and interacting with large car manufacturers.
Larger players will probably grab this opportunity in the coming decenny but they will have to compete with their foreign counterparts. This consolidation has occured in the early 1980s, when for instance Valeo had acquired tens of European companies under its umbrella.
India enjoys a 10 to 20 percent cost competitiveness compared to the Western world, thanks to its low labour cost and its frugal approach to doing business. That is a key success factor for its export growth. Obviously, China and other Asian countries like Indonesia are competing to grab market share from multinational companies.
Export of automotive components to the rest of the world (mostly Europe and the USA) is still growing rapidly (from $5 billion today to $ 29 billion, according to ACMA forecast for 2020). But the rapid growth of salaries even at the shopfloor level may hamper this fast development. Some advanced actors have already robotised a part of their manufacturing processes, with simple yet cost-effective devices, in order to limit the burden of labour for the future. Hopefully, the New Manufacturing Policy should become a serious tool to avoid labour unrest and promote industrial development.
One unique strength of India is its frugal approach to business. From frugal innovation, like the micro-hybrid technology developed by Bosch and Mahindra & Mahindra to frugal manufacturing, like the widespread recycling of second-hand machine tools from Western origin, Indian engineers are still keen to launch new products and services at a fraction of the investment and development cost needed by foreigners.
But here again, few have already learnt how to behave the Indian way. Taking the Tata Nano as one of the best example frugal innovations, Bosch India has taken quite a significant share of the business with petrol fuel injection, wiping system and braking system. All of these specific developments have been made in India by local Bosch teams. It will be interesting to see how innovation spreads between Indian and foreign suppliers in the future.
Indian OEMs are going to take a larger market share in global markets and they would need their suppliers to follow them, where they decide to make their investments.
In the Western world, they would have to acquire local companies or partner with them. The ease of doing business overseas is just as complex as doing business in India for a foreign company. Trial and mistakes can be limited by using local consultants and by using local managers, which are plentiful and well trained.
Intercultural issues will add to the challenge and should therefore not be underestimated. The failure of few takeovers in Europe could have been probably avoided with the assistance of some some intercultural experts.
Post-merger integration is a unique task for a limited period of time (under 18 months) and should be handled by specialists. Once again, transition managers, having done it on different occasions, could be assigned to this important task.
As my Japanese friends would say, let me wish all of you gambatte kudasai or good luck!